Even if Federal Reserve Chairman Jerome Powell and his cohorts stopped hiking policy rates soon, the 30-year fixed mortgage rate still would climb to 10%, according to Christopher Whalen, chairman of Whalen Global Advisors.
Borrowers pay a premium above risk-free Treasury rates on mortgages to help account for default risks. The 30-year Treasury rate TMUBMUSD30Y, 4.223% rose to 4.213% Thursday, its highest since 2011, according to Dow Jones Market Data. Whalen, an investment banker, author and specialist focused on banking and mortgage finance, urged the U.S. Securities and Exchange Commission in 2008 to move complex and opaque derivatives “back into the daylight,” after banks and investors saw hundreds of billions of dollars in losses tied to structured debt, including subprime mortgage exposure. He also provided testimony to Congress in 2009 about systemic risks of the banking industry.
That’s a bigger call than estimates for a 10%-15% correction in home prices from prices that surged 45% nationally during the pandemic. Mortgage loan rates can be traced directly to the mortgage-backed securities, or MBS, market, which are bonds that trade on Wall Street, mostly with government backing, that finance the bulk of the near $13 trillion U.S. mortgage debt market.
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